NZ central bank holds rates, flags less hawkish policy track
By Lucy Craymer
WELLINGTON (Reuters) -New Zealand's central bank held the cash rate steady at 5.5% on Wednesday and trimmed the forecast peak for rates, catching markets by surprise as policymakers said the risks to the inflation outlook have become more balanced.
The decision was in line with expectations from 28 economists in a Reuters poll with all but one forecasting the Reserve Bank of New Zealand (RBNZ) would leave the cash rate at a 15-year high for the fourth consecutive meeting.
However, the central bank's rate forecast track signaled a slightly more dovish outlook than some traders had anticipated, triggering a selloff in the New Zealand dollar and a rally in bonds.
The RBNZ lowered its forecast cash rate peak to 5.6% from a previous projection of 5.7% — effectively reducing the risk of further tightening — and continues to foresee a cut until mid-2025.
«Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced,» the RBNZ statement said.
The market had priced in around a 23% chance of a hike this week. The probability of a move by May more than halved to just 20%, from 47% before the announcement. while two-year swap rates dived to 5.035%, from 5.195% and the kiwi dollar was down almost 0.8% at $0.6122, breaking support around $0.6152.
ASB chief economist Nick Tuffley said that the tone of the statement was not as hawkish as could have been, with the risks now seen as more balanced as opposed to the upward skew noted in November’s statement.
“We think over coming months the hurdle for an OCR move in either direction remains high,” he said.
New Zealand's annual inflation has come off in recent months and is currently running at
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